FIN327: The Holding-Period Return - The Daily Returns - Finance Assignment Help

Assignment Task:

Instructions 
This questionnaire covers the portions of Chapters 5,6,7, 8, 9, and 12 covered in the PowerPoint slides. Make sure that you study the material before completing this questionnaire. 

How to complete: 
THIS IS AN INDIVIDUALIZED EXAM THAT MUST BE COMPLETED ON YOUR OWN. You do not have to do this questionnaire at a specific time, as long as you submit it before the due date. You do not have to do it all at once, you can save it and continue later. 

Enter your answers directly in the pale blue boxes below. When you are done, SAVE YOUR FILE!! (with your name) and submit it in the second midterm assignment section on Blackboard. If you are unable to load the file on Blackboard, you can e-mail me your file. 

For calculations, you can use Excel equations (e.g. =(14-2)/3) directly in the blue boxes. You can also do the calculations on your calculator, and enter the result in the blue boxes. 

If you cannot use Excel, you can alternatively use a printed version of this questionnaire. Please get in touch with me by e-mail if you need to use this option. In your e-mail, indicate if you can use a printer and if you can scan the completed questionnaire, for example with your phone. 

There is no partial credit for this test, please take the time to verify your answers. 

Question 1. 
Use the prices for your stock in the first table in the tab "Daily" to compute the holding-period return for your stock for the period from February 21, 2020, to March 24, 2020. Include dividends if any (some stocks might not have dividends in that period.) You can type the calculation directly in the box. 

Question 2. 
Using the daily returns for your stock in the second table in the tab "Daily," compute the time-weighted return for your stock using the daily returns from February 24, 2020, to March 24.  2020. Perform your calculations in the tab "Daily" and copy your answer in the box below. 

Question 3. 
By how much did your stock's volatility increase in the recent sell-off? (vs. the beginning of the year). To answer this question, use the daily returns in the second table of the tab "Daily?' Use the Excel function =STDEV() to compute the historical standard deviations for each period. Do your calculations in the tab "Daily" and copy the results in the boxes below. For the increase, divide the second standard deviation by the first one.

Question 4. 
In the PowerPoint slides for Chapters 5, 6, and 7, we used an example of an expected return calculation with a probability distribution. The table below gives you the original distribution and a revised probability distribution based on the recent shut-down of the economy. Compute the new expected return with the revised probability distribution. You can type the calculation directly in the box. 

Question 5. 
Use the annual returns for 2016, 2017, 2018, and 2019 in the tab "Stock" to compute the annualized return of your stock for the four-year period 2016-2019. You can type the calculation directly in the box. 

Question 6. 
What type of average did you use in Question 5? 

Question 7.
When should you annualize returns when you report performance? 83 

Question 8. 
Would you expect individual stocks to be positively correlated or negatively correlated with the S&P 500 index? Additionally, compute the correlation coefficient between your stock's daily returns and the daily returns of the S&P 500 index since the beginning of the year using the Excel function =CORRELO. The daily returns for your stock and the S&P 500 index for the period from January 2, 2020, to March 24, 2020, are in the second table in the tab "Daily." Do your calculations 87 in the tab "Daily".

Question 9. 
Compute the expected return of your stock according to CAPM, using an assumption of rt = 0.79% and E[rm]= 10.26%. You can find the beta for your stock in the tab "Stock." 

Question 10. 
The tab "Stock" gives you the actual expected return for your assigned stock based on the analysts' forecasts (something similar to what we have done in the activity). Based on that number and the one that you have calculated in Question 9, would you recommend buying or selling the stock? Use your answer from Question 9 to justify your answer. (If you do not have an answer in Question 9, write "No answer in Q.9, answer based on the expected return of 10%1

Question 11. 
Your friend uses technical analysis and, based on price patterns, he or she predicts a reversal for the S&P 500 index and suggests buying it. What does the Weak Form of the Efficient Markets Hypothesis say about your friend's ability to profit from the strategy? 

Question 12. 
Between February 21, 2020, and March 24, 2020, the worst sector of the S&P 500 index was Energy with a -48.3% return and the best sector was Consumer Staples with a return of -20.5%. Which type of investor (momentum or contrarian) would invest in the Energy sector at this time, a momentum investor or a contrarian investor? 

Question 13. 
What is the name of the strategy where investors predict business cycles and invest in sectors that perform relatively better in these cycles? 

Question 14. 
You judge that the recent market sell-off is overdone. Use one of the "limits to arbitrage" arguments to explain why, even if you are correct about stocks being underpriced, you might not buy them to exploit your prediction. (There is more than one possible answer.) 

Question 15. 
You currently own SPY, which is an ETF replicating the S&P 500 index. You consider adding another ETF to your portfolio and your options are TLT (iShares 20+ year bonds), DIA (Dow Jones Industrial Average SPDR), and GLD (SPDR Gold Shares). The table below gives you the correlation matrix for SPY, TLT, DIA, and GLD. Which is the best (worst) ETF to combine with SPY to obtain the maximum benefit from diversification? 

Question 16. 
The recent sell-off highlighted that there is one type of risk that cannot be eliminated by combining several securities together in a portfolio. What is this type of risk? 

Question 17. 
Give an example of a stock that benefited from firm-specific risk during the recent sell-off—i.e., one that had a price increase from February 21, 2020, to March 24, 2020. You can find price information on stocks on Yahoo! Finance. 
 
Question 18. 
The tab "Graph" gives you the historical prices of your stock and its 50-day moving average since February 12, 2020. According to the 50-day moving average, do you get a sell signal during the period? If you get a sell signal, what is the first date? (I will accept answers within +1- one day from the correct answer. You can check the table next to the graph to better identify the dates if the graph is hard to read.) 

Question 19. 
From February 21, 2020, to March 24, 2020, the S&P 500 index dropped by -26.6%. Give an example of a behavioural bias that can explain an exaggerated response to recent information. 

Question 20. 
Read the news and give an example of a recent fiscal policy action taken by Congress to respond to the coronavirus crisis. Give the formal name of the policy and outline it in a few lines. Note that there is more than one correct answer to this question. 

Question 21. 
At the beginning of Chapter 12, we discussed two broad approaches to selecting securities. Your approach is to analyze fiscal policy and identify which industries will benefit from the stimulus. What is the name given to this type of approach?

Question 22. 
By how much did the Federal Reserve reduce the target range for their policy interest rate? 

Question 23. 
Over the coming months, the Fed is going to purchase Treasury securities and agency mortgage-backed securities. In the past, what was the name given to a policy of purchasing bonds and mortgages? 

Question 24. 
The actions taken in Questions 22 and 23 are part of 

Question 25.
In the transcript, did Jerome Powell see negative interest rates as a likely policy response in the U.S? 

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